Your children have years to save for a down payment on a house; you as a baby boomer may only have a handful of years left to save for your retirement.
If you are a parent, you may notice that grown children seem to do everything later than young adults used to—they may not graduate from college in four years, they may pursue a professional degree and not graduate until their late 20s. Whereas people used to get married in their early 20s, now many are waiting until their late 20s or early 30s. They are also buying homes later, and they often don’t have much money saved for a home down payment, thanks in part to years of education and students loans. As a parent, you may want to step in and help them, but should you?
Keep in mind that your retirement should always come first. Your children have years to save for a house down payment; you may only have a handful of years left to save for retirement. In general, before helping your children, make sure the following are in order:
* Have your own home paid off or at least have a sizeable amount of equity in the home and a target date to pay off the home before your retirement date.
* Fully fund your IRAs each year.
* Apply for long-term care insurance, if that is something you think you should invest in (and most people should)
* Have all other debts such as consumer debts paid off.
If your own financial house is in order and you would like to help your adult children, consider the following ways to help:
* Offer the money for a home down payment as a gift. Common advice is that if you lend money to a relative, it often leads to a strain in the relationship. If you can afford to give your child money for a home, give it as a gift to avoid straining your relationship.
* Consider a refinance of your own home to obtain money to buy a home for your child. Investment property loans are very common now, and you could obtain one to buy the home for your child and have him pay you the monthly payment. This agreement would be ideal if your child had bad credit or a low paying job and could not qualify for a home loan himself. If you go this route, please make sure to have your agreement written on paper and signed by a notary just in case your child stops paying.
Many parents would like to help their children obtain their first home. However, use caution to make sure that you are in a financial position to help them. Remember that you cannot borrow for retirement; retirement savings should come before any aid you may give a child. If you can afford it, consider gifting your child the money or taking out the mortgage for them and allowing them to repay you.
Photo: Tony Accardo